The chief economist of the European Central Bank (ECB), Philip Lane, alerted this Friday, May 1, to the possibility that the area's economy could be completely remade from the economic impact generated by the Covid-19 pandemic in 2023. publication on the ECB's blog, cited by the Financial Times, Lane described the worst case scenario, considering its realization only if the eurozone's gross domestic product (GDP) in 2020 falls by 12%.
According to the ECB's chief economist, the scenario designed by the central bank is strongly conditioned by the “severe shock” caused by the epidemiological outbreak of Covid-19, concluding that the eurozone economy will not return to the levels of the end of 2019 before 2023 .
Even in an intermediate scenario, the ECB points out that the economic recovery will always have a three-year time horizon, forecasting a GDP contraction of 8% at the end of 2020.
In contrast, in a less pessimistic scenario, the contraction of the zone's GDP will be 5% and the economic recovery will be complete by the beginning of 2021.
"The scale and duration of the macroeconomic shock caused by the pandemic depends on the duration of [restrictive] measures, their impact on sectors and the speed at which economic activity normalizes," argued Philipe Lane.
The ECB, after the monetary policy meeting, held on Thursday, April 30, had pointed to the forecast that the eurozone economy could decline between “5 and 12%” in 2020, reflecting the “great uncertainty” regarding the economic impact of the Covid-19 pandemic, according to the organisation's president, Christine Lagarde.
In the first quarter of the year, GDP in the eurozone decreased by 3,8%, according to Eurostat data also released yesterday.
“Given the great uncertainty surrounding the economic impact [of the pandemic], the ECB's growth scenarios suggest that GDP could fall by 5% to 12% this year […] The fall in economic activity in April suggests that the impact will be probably more severe in the second quarter, ”said Lagarde.
Lagarde also stressed that the economic downturn is expected to have “a negative effect” on inflation “over the next few months”.
From the meeting, the ECB decided to leave interest rates unchanged, although it announced that it had eased lending conditions to banks and said it was available to increase the volume of debt purchases. The European Central Bank's emergency program to purchase additional debt to halt the effects of the Covid-19 pandemic could also be extended after 2020.